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Returns on Investments in Energy-saving Technologies Under Energy Price Uncertainty in Dutch Greenhouse Horticulture

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Author Info
Paul Diederen ()
Frank van Tongeren
Hennie van der Veen

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Abstract

Conventional net presentvalue calculations evaluating the profitabilityof investments in energy-saving technologies inDutch horticultural outlays predict a muchhigher rate of adoption of these technologiesthan is actually observed. This paper tries toexplain this gap by applying a real optionsframework. Hurdle rates for investments in twotypes of energy-saving technology are estimatedusing simulated future revenue streams, givenuncertainty regarding energy prices and energytax policies. Hurdle rates found in this wayare on average about 1.76 times the hurdlerates that result from net present valuecalculations. Furthermore, this paper tests thepredictive value of the theory by estimating alogit model. This model relates the incidenceof having invested in an energy-savingtechnology to the difference between the returnon investment and the hurdle rate. Thepredictive power turns out to be encouraging,as the statistical tests indicate that higherhurdle rates tend to reduce rates of technologyadoption. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/A:1023617318184
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Publisher Info
Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 24 (2003)
Issue (Month): 4 (April)
Pages: 379-394
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Handle: RePEc:kap:enreec:v:24:y:2003:i:4:p:379-394

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Web page: http://www.springerlink.com/link.asp?id=100263

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Related research
Keywords: energy saving; horticulture; real options; simulation; technology adoption; uncertainty;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Dixit, Avinash, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-32, Winter. [Downloadable!] (restricted)
  2. Daan van Soest & Erwin Bulte, 2001. "Does the Energy-Efficiency Paradox Exist? Technological Progress and Uncertainty," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 18(1), pages 101-112, January. [Downloadable!] (restricted)
  3. Hassett, Kevin A. & Metcalf, Gilbert E., 1993. "Energy conservation investment : Do consumers discount the future correctly?," Energy Policy, Elsevier, vol. 21(6), pages 710-716, June. [Downloadable!] (restricted)
  4. Grenadier, Steven R. & Weiss, Allen M., 1997. "Investment in technological innovations: An option pricing approach," Journal of Financial Economics, Elsevier, vol. 44(3), pages 397-416, June. [Downloadable!] (restricted)
  5. de Almeida, Edmar Luiz Fagundes, 1998. "Energy efficiency and the limits of market forces: The example of the electric motor market in France," Energy Policy, Elsevier, vol. 26(8), pages 643-653, July. [Downloadable!] (restricted)
  6. DeCanio, Stephen J, 1998. "The efficiency paradox: bureaucratic and organizational barriers to profitable energy-saving investments," Energy Policy, Elsevier, vol. 26(5), pages 441-454, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Aramyan, Lusine & Lansink, Alfons Oude & Verstegen, Jos, 2005. "Investments in Energy-Saving Systems in Dutch Horticultural Farms," 15th Congress, Campinas SP, Brazil, August 14-19, 2005 24285, International Farm Management Association. [Downloadable!]
  2. Gilbert E. Metcalf, 2006. "Energy Conservation in the United States: Understanding its Role in Climate Policy," NBER Working Papers 12272, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Hammar, Henrik & Löfgren, Åsa, 2007. "Explaining adoption of end of pipe solutions and clean technologies," Working Paper 102, National Institute of Economic Research. [Downloadable!]
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